China North East Petroleum Holdings and company executives were sued by the US Securities and Exchange Commission over claims that offering proceeds were fraudulently diverted to insiders' personal accounts.
The US government claimed in a complaint filed yesterday in Manhattan federal court that insiders made US$59 million without proper disclosures.
Starting in 2009, Wang Hongjun, CNEP's president and chief executive, and a company founder, Ju Guizhi, engaged in "numerous undisclosed, related-party transactions" involving the company, the SEC said.
"Neither the magnitude nor the volume of these related-party transactions has been fully disclosed to the investing public," according to the complaint.
The diversion of funds from two 2009 public stock offerings to insiders and their family members was inconsistent with their "intended and permissible uses", according to the SEC.
CNEP is a Nevada corporation that does oil exploration, drilling and production in China, with principal offices in New York and California, according to the filing.
The company was formed through a reverse merger with a US-based shell company in 2004, the SEC claims.
After the company's stock was delisted by the New York Stock Exchange in July, the shares remain delisted and registered with the SEC, according to the complaint.
A representative of CNEP was not immediately available to comment on the lawsuit.